Coinbase loses first round of battle against SEC

■  Court has ruled against Coinbase motion for dismissal of charges of operating as an exchange, broker and clearing agency.

■  Court has sided with SEC on staking program issue but supports Coinbase on SEC claims regarding wallet.

■  Case will proceed as US District Judge Katherine Polk Failla mostly denied Coinbase’s motion to dismiss the SEC’s charges.

In June of 2023, the US Securities & Exchange Commission (SEC) levied charges against Coinbase Exchange, claiming that the trading platform operates as an unregistered securities exchange. It was around the same time as when the financial regulator went after Binance Exchange. Both platforms denied the charges.

Coinbase versus SEC case to proceed as court sides with regulator

A day after the SEC filed a lawsuit against Binance last year, it went after Coinbase in a sign that the clampdown is extending to key players in the industry. The latest development in the matter is that the court has ruled in favor of the financial regulator, which means the case will continue.

In an 84-page decision on Wednesday, US District Judge Katherine Polk Failla leaned in favor of the SEC, when she largely denied the motion to dismiss the regulator’s earlier request to dismiss the SEC’s charges. In its request to dismiss, Coinbase charged:

●  SEC violated Coinbase's right to due process by not providing the industry with fair notice that crypto assets traded on digital platforms could be considered securities.

●  Invoking the major questions doctrine, a guiding principle established by the Supreme Court. It stipulates that Congress should not delegate to agencies like the SEC on matters of major political or economic significance. 

However, Judge Polk argued that the SEC had provided proper notice through written guidance, litigation and other actions. An excerpt from the judge’s ruling reads:

Having now carefully considered the parties' arguments ... the Court concludes that because the well-pleaded allegations of the Complaint plausibly support the SEC's claim that Coinbase operated as an unregistered intermediary of securities, Defendants' motion must be denied in large part.

Nevertheless, Coinbase took some wins home, including that the case against one product, Coinbase Wallet, could be dismissed. This determination came as the platform did not mention the wallet as a source of revenue in its most recent shareholder letter.